Although tax planning should be considered throughout the year, we understand it can be left to the last minute. The 5 April deadline may seem like a way off, but it’s never too early to ensure that you’re on track to make the most of your allowances.
Read our guide below for tips on how to make sure your money is working its hardest for you.
ISAs, or individual savings accounts, provide a way of saving whereby you don’t pay tax on any gains that you make. The maximum you can save per year is £20,000 and it’s important to note that any unused allowance doesn’t roll over. Therefore, you need to make sure you have made your deposits by the 5 April deadline.
One of the benefits of ISAs is that the money within them is often available to be drawn free of tax when it is required.
There are two main kinds of ISA: cash (available to over 16s) and stocks and shares (available to over 18s).
A stocks and shares ISA may offer greater returns over a longer period, but you generally need to be prepared to let your money stay put for a few years. Cash ISAs can be more flexible in terms of removing money if needed. You can split your money between them as long as the total doesn’t exceed the £20,000 limit.
Junior ISAs for those under 18 can have up to £9000 saved per account each year. Your child won’t be able to access it until they’re 18 when it will turn into an adult ISA.
Lifetime ISAs were introduced for those trying to save for a home deposit or retirement. They can be opened between the ages of 18-39 and provide a 25% government bonus on whatever you’ve saved each year. The maximum you can deposit into them is £4000 per year.
Your pension contributions provide a form of Income Tax relief and for 2021/22 you can pay in the lower amount of either up to £40,000 per year or 100% of your salary. This is called the annual allowance.
Higher-rate taxpayers can get up to 40% tax relief, meaning that essentially for every £60 paid in by a higher rate taxpayer, the government will top up the value by £40 to make £100. How it normally works is that the pension will give the basic tax relief back at source and the individual will then need to claim back the higher tax relief through their tax return.
If your taxable earnings in the year are below the annual allowance, then you can receive tax relief on 100% of your earnings or £3600 gross, whichever is higher.
If you don’t make full use of your allowance, you can carry forward unused contributions for up to three years. The deadline for making use of this for the tax year 2018/2019 is 5 April 2022.
If your threshold income is above £200,000 and your adjusted income is above £240,000 you may be subject to tapering of your annual allowance. This means your annual allowance will gradually reduce by £1 for every £2 adjusted income over £240,000.
Pensions can form a complex part of your financial planning, so it’s always a good idea to seek sound financial advice when it comes to managing them.
You can gift up to £3000 per year, removing it from your estate and therefore avoiding inheritance tax (IHT) on this amount. Any amount unused can be carried forward for one year only, meaning the deadline for gifts to be paid under the 2020/21 tax year is 5 April 2022.
You can also make payments of £250 to individuals without them being subject to IHT, as long as no other gifts are made to the same persons in the same year.
Capital Gains Tax
Capital gains is the amount you make per year on your assets, such as property. The first £12,300 of capital gains made per year is tax-free. This amount has been frozen until April 2026.
Married couples are taxed individually for capital gains so you may be able to gift or transfer an asset to a spouse. Again, it’s important to seek advice to ensure you make the correct decision regarding your capital gains tax allowance. The allowance cannot be carried forward after the tax year has ended so it needs to be used by 5 April 2022.
If you have exhausted all your tax-free allowances, you may want to look at other tax-efficient ways of investing.